Tariffs, Tech, and Treasury Yields: Markets Retreat as Rate Cut Hopes Rise

Market Overview

After a record-setting week, U.S. equities declined across the board. The S&P 500 shed 2.34%, snapping a five-week winning streak, while the Dow (-2.92%) and Nasdaq (-2.16%) followed suit. Tariff escalations and July's softer-than-expected jobs data fueled Friday's selloff, dragging risk sentiment globally. European and Asian markets also finished lower, with Hong Kong leading regional losses. Japan managed to outperform on favorable U.S. trade treatment and potential Bank of Japan easing.

Tech earnings were in focus: Microsoft and Meta lifted spirits early with upbeat results and AI investment plans, but Amazon’s weak margins and Apple’s mixed results weighed on sentiment by week’s end. Year-to-date, however, tech and comms sectors remain market leaders, up 15.3% and 12.0% respectively.

On the sector front, Utilities (+1.6%) stood out as the only weekly gainer, while Materials (-5.4%) and Consumer Discretionary (-5.0%) posted the steepest declines.

Federal Reserve Insights and Economic Roundup

The Fed held rates steady in July but revealed its first dual dissent since 1993. Fed Governors Bowman and Waller pushed for a quarter-point cut—signaling growing division on the path forward. Chair Powell’s tone was mixed: while acknowledging moderating growth, he stopped short of committing to September easing, briefly dampening dovish hopes midweek.

That changed Friday.

A weak July nonfarm payroll report (+73K jobs vs. +185K expected), along with significant downward revisions to prior months, sent bond yields plunging. The 2-year Treasury yield posted its largest single-day drop since August 2024, ending the week at 3.69%. Markets now fully price in two Fed cuts this year, with September expectations gaining traction.

Meanwhile, revised consumer and business spending data confirmed a deceleration in Q2 growth, adding further support to the case for near-term easing.

The Week Ahead

Markets will watch closely for signs of continued economic moderation. Key reports to watch include:

• Monday: Factory Orders (Jun), Durable Goods Orders (final)
• Tuesday: Trade Balance (Jun), ISM Services Index (Jul)
• Thursday: Productivity & Labor Costs (2Q prelim), Jobless Claims, Wholesale Inventories
• Friday: No major release

With inflation softening, labor market cracks showing, and a divided Fed, the next few weeks could prove pivotal for policy—and portfolios.